Make sure you are spending enough in retirement

When I moved to Minnesota nearly 30 years ago, I gave a series of talks about money around the state. After one of those talks, a man asked if I would discuss money with his mother, a retired teacher. I assumed she was spending beyond her means. Wrong. Early in our conversation it became apparent that he was trying to get her to spend more on herself. She had retirement savings and a pension, yet after a lifetime of frugality she found it hard to spend.

I thought about her the other day. A number of studies show that many retirees who consistently put money into their employer's retirement savings plan over the years spend less than they might in retirement. Retirees with enough savings to navigate through difficult times often find it hard to spend what's been saved, especially when consumption is no longer funded by salary income but accumulated savings. Both may be income, but mentally they're typically (and understandably) seen as different.

The spending caution isn't irrational. The worry over the risk of large and unexpected medical bills and long-term care costs is legitimate. Not knowing how long we need to live off savings compounds the uncertainty. Of course, the bigger social and economic problem is a lack of retirement savings, especially among those who worked for employers without a retirement savings plan.

That said, a good number of retirees are living below their means, and they could relax at least somewhat. That's one way to interpret the numbers collected by the authors of "The Decumulation Paradox: Why are Retirees Not Spending More?" The report focuses on retirees with non-housing assets of at least $200,000. For example, only 31% regularly withdraw from their portfolio; most leave the principal alone; and nearly one third save some retirement income. When retirement expenses are more than expected, the preferred strategy is to cut back on consumption rather than withdraw more money from investments.

One way to increase your comfort with spending more is to focus on what makes life meaningful. Perhaps that's funding trips for extended family, being more generous with charitable contributions, and investing in the education of grandchildren. You earned your savings, and you should enjoy spending it on what matters.

Chris Farrell is a senior economics contributor on "Marketplace" and a commentator on MPR.